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Hearing sceptic harmonies

The Eurosceptics are right: the aim of the EU is, and has always been, towards ever closer economic and political union. Where they are wrong is in believing that it was ever possible to limit its development to free trade, whatever the preferences of its political leaders. Free trade can and does flourish between countries that have radically different economies, between those, say, devoted almost entirely to the production of raw materials and those devoted to manufactured goods. This was why, for many years, the British Commonwealth seemed an attractive option, because the economies of New Zealand, Nigeria and Britain are almost as divergent as it is possible to imagine.

But the west European economies, despite their many differences, are more alike than unalike. They can sustain a simple free trade area for a period but, since their economies are competitive rather than complementary, they cannot do so indefinitely. Sooner or later, one country will seem to be enjoying unfair advantages because it has made its goods cheaper through lax environmental and safety regulations, weak protection for workers or consumers, low taxes, a devalued currency or some combination of these. The other countries then have three alternatives: restore tariffs to protect their industries and jobs; cut costs through deregulation and tax cuts of their own; or press for harmonisation. The second alternative is essentially only a version of the third. The Eurosceptics, in reality, are every bit as strong for harmonisation as Oskar Lafontaine; they just want the rest of Europe to harmonise with the British. Instead of everybody's fate being decided by faceless Brussels bureaucrats, they want it decided by faceless Whitehall bureaucrats, making a happy bonfire of regulations.

Many of the present worries are based on a misunderstanding (probably wilful, in the case of the tabloid press): when Mario Monti, the EU tax commissioner, refers to "harmful tax competition", he is talking mainly about the need to stop cross-border tax evasion rather than about mainstream tax rates. But the drive towards harmonisation remains real; the present EU review of "tax dumping" - chaired by a British minister, Dawn Primarolo - might have covered "a member state's general business tax regime" had it not been for Irish opposition. EU law already accounts for 70 per cent of our business legislation. VAT is harmonised in that rates must fall between certain broad bands; it is hard to believe that a similar regime will not eventually apply to corporation tax. Nor should we dismiss the ultimate Eurosceptic nightmare: a Brussels chancellor presenting an annual budget that is at least as important as the British budget. Under a common currency, where a national government has no more power than St Helens Borough Council to vary interest or exchange rates, some kind of taxation and redistribution from EU level will eventually be necessary to stop a weak member country suffering a complete flight of jobs and capital.

In Britain, the debate is too often conducted in infantile terms: the Eurosceptics dramatise the scares, while the pro-Europeans (with the honourable exception of Sir Edward Heath) assure us that nothing need ever really change. But it is no use continuing to ignore the truth; that, as the current issue of the US magazine Newsweek puts it, "a second democratic, federal superpower may be taking shape on the Atlantic's eastern shore". Two questions are hardly ever addressed in Britain. The first is how EU bodies can be made more democratic and accountable. (The Eurosceptics pretend they can't be, the pro-Europeans that they don't need to be.) The second is whether there is any alternative to a federal Europe. The answer to that depends on your politics. The globalised economy already imposes a form of harmonisation; as British politicians, particularly on the right, never tire of telling us, we cannot hope to survive without a low-regulation, low-tax regime. Multinational companies, working through such bodies as the World Trade Organisation, try to impose their own harmonisation, setting universal conditions for countries to get investment and new factories. Indeed, nothing has done more to erode national sovereignty than the global free market, both through its mode of operation and through its chief police officers, the IMF and the World Bank.

To the free-market Eurosceptics, that is no bad thing; as far as they are concerned, the less government, the better. They treasure national sovereignty - though they do not admit this - precisely because it is so weak. It is for their opponents, particularly on the centre-left, to debate and articulate the alternatives. Their failure to do so is gross political negligence.